Fintechs are on the rise in Latin America (LATAM), thanks in large part to the mismatch between the region’s relatively young, tech- and digital-savvy population and its preponderance of costly, friction-full financial products.
This holds especially true in Brazil, the world’s twelfth-largest economy. Investment options in the country have traditionally emphasized basic savings accounts and fixed income products, but that picture is changing as the nation undergoes a series of demographic and macroeconomic transformations that encourage diversification. The median age in Brazil is 33 and 62% of the country’s population is 29 or younger, auguring a period of significant wealth transfer within families. Brazilians are also in the top three user bases of Uber, Instagram, and Facebook globally and have a higher fintech adoption rate than people living in the U.S.
Brazilians are therefore ideally suited to embrace technologies that enable personalized, online retail investing—an approximately $2 trillion market in the country that is expected to grow at more than 24% a year through 2024. Given that the five banks that (directly or indirectly) hold 80% of Brazil’s investment deposits are all constrained by their legacy infrastructures from broadly and nimbly engaging investors, the space is ripe for disruption. Indeed, only 35% of Brazilian investors say they are happy with the selection of products offered by their banks, whereas more than 70% of Brazilians who invest through other channels say they are happy with the product selection available to them.
Leading the charge on this disruption is Warren, a digital-first wealth management platform. Founded in 2017, this “wealthtech” app appeals to a wide range of clients by combining elements of low-cost investing platforms like Robinhood, robo-advisors such as Betterment, and sophisticated private banks (for high net worth individuals and family offices) into a holistic, easy-to-use digital offering.
Warren users receive an asset allocation optimized to help them meet their goals, then load money onto the platform to build portfolios that correspond to those goals. Offering over 1,000 investment choices across fixed income, private pension, stocks, and mutual funds (with digital assets coming soon), Warren can suggest pre-built portfolios, or customers who want to play a more active role can change the asset mix. Warren’s personalized, intuitive user experience and wide array of investment options have won it more than 300,000 customers since its founding, making it one of Brazil’s top digital wealth management platforms.
Warren’s founders—Tito, André, and Kelly Gusmao; Marcelo Maisonnave; and Rodrigo Grundig—are no strangers to disrupting the Brazilian financial services market, most of them having previously served in leadership roles at publicly-traded brokerage firm XP Investimentos. Like other Brazilian brokers, however, XP Investimentos relies on salespeople to sell investment products on a commission basis—potentially creating conflicts of interest between the salespeople, who are incentivized to sell products with higher commissions, and customers who want the products that are the best fit for them.
In contrast, Warren’s business model is not based on commission or transaction fees—rather, it charges its users a percentage of their assets under management, increasing transparency and reducing the potential for a conflict of interest. That percentage drops as the value of an account grows, stabilizing the cost to the user over time. Warren also reimburses its customers for 100% of any sales/brokerage commissions paid to the company. This model, championed by incumbents like Charles Schwab, Fidelity and Vanguard, has achieved great success in the U.S. over the past decade, and we’re confident that it will prove similarly popular in Brazil.
Warren has other advantages over its competitors as well. Having researched many similar platforms in Brazil, we were struck by how great a balance Warren strikes between offering a wide array of investment products and delivering a very simple user experience. Its investment products and strategies are explained clearly, which helps to further demystify investing. And the app itself is built on a modern tech stack, providing it functionality that is difficult for many potential competitors—particularly incumbents using legacy technology—to replicate.
Warren’s growth aspirations are impressive: the company is looking to attract customers across various segments in Brazil, ranging from the mass affluent to ultra-high net worth individuals and family offices. It also has a complementary institutional business comprised of a trading desk, capital markets advisory services, and fund services. This enables Warren to create more diversified retail investing funds via direct access to Brazilian treasuries and new issues of stocks and bonds. Finally, Warren has successfully white-labeled its platform to investment advisors, offering the firm yet another revenue stream.
By bringing all these investment products and services together on one straightforward platform, Warren is providing the Brazilian investing market with a superior level of access in a fair and transparent way. Given its distinctive team, compelling market opportunity, and differentiated offering, we are thrilled to announce our co-investment in Warren’s Series C round extension, in partnership Citi Private Bank Brazil, together with existing investors GIC, QED, and Kaszek. We congratulate Tito, André, Kelly, Marcelo, Rodrigo, and the entire Warren team, and look forward to working with them as they shape a new era of investment in Brazil.
For more on Citi Ventures’ interest in the Latin American fintech ecosystem, click here (American Banker subscription required).
To see Citi Ventures’ full portfolio of companies, click here.